DaimlerChrysler Group Annual Results
DaimlerChrysler: Record Sales and Profit Figures in the First Business Year (1998)
Stuttgart/Auburn Hills, March 31, 1999 - DaimlerChrysler expects steady growth among all of its businesses, especially those operating within the company’s two key markets of North America and Western Europe. According to an outlook presented at the DaimlerChrysler annual press conference in Stuttgart on March 31, the automotive brands are expected to achieve further growth even within a stagnating or slightly declining market environment in some parts of the world.
The company expects revenues to increase to e 137 billion (euro) in 1999 from e 131.8 billion in 1998, based on the high demand for DaimlerChrysler products and the upward business trend for the first months of the year. By the year 2001, DaimlerChrysler projects an increase in revenues of more than e 20 billion to e 153 billion, with all businesses contributing to this growth. Profitability is also expected to increase further in the years to come. The company reported that strict cost management in all fields of business, and the synergies expected as a result of the merger, are a good foundation for enhancing profitability and increasing earning power in the future.
Business developments are favorable with Dollar-based increases of 4 percent. This is reduced, however, by currency changes when converting to the Euro.
Schrempp: "Integration is right on track"
DaimlerChrysler Chairman Juergen E. Schrempp emphasized that the company’s integration is proceeding rapidly and successfully. Schrempp stated, "Integration is right on track. We achieved many goals and overcame hurdles in areas where many other mergers have failed. We can rightly claim that the people of DaimlerChrysler are turning the potential of this merger into performance. We are one company."
DaimlerChrysler expects to complete most of the integration projects by the end of 2001. The company will realize e 1.3 billion worth of synergies in 1999, as previously announced. Schrempp noted some of the achievements of the integration process. They include the cooperative and result-driven management style in the Board of Management; the new global sales and marketing organization designed to maximize the strength and reach of the products represented by the company’s brands; the clear positioning of the various DaimlerChrysler brands toward well-defined global customer segments; and the combination of several entities and functions such as financial services, procurement and supply, information technology, and research and technology.
Eaton: "Growth and good opportunities for DaimlerChrysler"
In his press conference statement, Chairman Robert J. Eaton elaborated on the company’s success to date and reviewed global opportunities. "DaimlerChrysler has started with a tremendously successful year," he said. "Due to economic stability on both sides of the Atlantic - particularly in North America and Europe - we are confident of continued success in 1999,despite some tough challenges around the rest of the world."
"In North America, nothing we’ve seen so far this year has caused us to reduce our expectations for 1999. The market there looks very strong, thanks to many positive factors. There is little chance for a recession, inflation is low, employment is up, consumer confidence is strong and interest rates are low. Things are not quite as strong in Europe, but, thanks to low inflation and economic stability in key markets, we look for moderate growth and good opportunities for DaimlerChrysler," he added. "While Asia continues to concern us, especially Japan, we still see good long-term growth potential for the industry. Finally, in South America, with the recession in Brazil and slower growth in Argentina, we expect a delay in growth until the year 2000," Eaton said.
To enhance its global competitive edge, DaimlerChrysler plans to spend approximately e 46 billion between 1999 and 2001 on research and development, including third party contracts, and on investment in fixed assets. The focus of these investments will be on product development and launches in the automotive businesses as well as enlarging the production capacities of the automotive and commercial aircraft units. DaimlerChrysler will introduce 34 new cars, light trucks and commercial vehicles over the next three years and at the same time, will bring many new products from the areas of services, aerospace, rail systems and diesel engines to market. Record figures in 1998 DaimlerChrysler achieved record results in its first business year, 1998, and revenues rose 12 percent to e 131.8 billion.
Return on net assets (RONA), the Group‘s main profit performance measure, reached 11.6 percent after taxes, significantly exceeding the established 9.2 percent minimum target to cover cost of capital and increase the value of the Group. The comparable 1997 combined figure was 10.2 percent. Net operating income after taxes, the basis for the RONA calculation, is e 6.6 billion, up 25 percent from e 5.3 billion in 1997. Annual average net assets were e 56.5 billion. As reported in the Feb. 25 release on DaimlerChrysler Group’s results, the company achieved an operating profit of e 8.6 billion in 1998 - an increase of 38 percent compared to the 1997 combined figure of e 6.2 billion. Income before income taxes (IBT) for 1998 is e 8.2 billion, 32 percent above the 1997 combined figures.
Adjusted net income for 1998 is e 5.2 billion, up 29 percent from the 1997 adjusted figure of e 4.1 billion in net income for the combined businesses. Adjusted earnings per share (EPS) are e 5.58, up 30 percent. At the Annual General Meeting of shareholders scheduled for May 18 in Stuttgart, the Management Board will propose paying a dividend of e 2.35 per share. At the end of 1998, the company had 441,502 employees. The number of employees rose by 7,764 to 233,030 in Germany and by 5,785 to 117,048 in the United States. A total of more than 19,000 new jobs were created in 1998 alone.
Profit growth in all divisions
All divisions posted profit increases in 1998 and were able to surpass the 15.5 percent RONA performance target set by DaimlerChrysler for its business units. This minimum requirement represents the average cost of capital before taxes and is calculated as a quotient of operating profit and net assets. Only the losses at Adtranz resulted in a negative operating profit in the "Other" businesses segment. The Passenger Cars division, comprised of Mercedes-Benz and smart, was extraordinarily successful in 1998, setting new records for both revenues and sales.
The division’s contribution to the operating profit of the DaimlerChrysler Group rose to e 2.0 billion compared to e 1.7 billion in 1997. Bringing many new and attractive models to market, the division’s sales increased by 29 percent to 922,795 units in 1998, compared to 715,055 units in 1997. RONA rose by 1.3 percentage points to 25.1 percent, for the division. The Passenger Cars and Trucks division, made up of the Chrysler, Plymouth, Jeep and Dodge brands, also set sales records reporting the sale of 3,093,716 units, up 7 percent from the 1997 figure of 2,886,981 units.
The introduction of several all-new and redesigned products has helped the brands to expand their market position. The operating profit of this division, e 4.2 billion in 1998, up from e 3.4 billion in 1997, represents the largest contribution to the Group’s total operating profit. The division’s RONA increased by 2.9 percentage points to 23.8 percent. The Commercial Vehicles division, made up of the Mercedes-Benz, Freightliner, Sterling and Setra brands, also continued its profitable growth in 1998. Operating profit almost tripled to e 946 million compared to e 342 million in 1997 and RONA increased by 10.6 percentage points to 17.1 percent. This strong upward trend was based in large part on the increased profitability of the business units Trucks Europe, Powertrain and Commercial Vehicles NAFTA.
With worldwide sales of 489,680 units, compared to 417,384 units in 1997, this division also reached an all-time-high for sales. Chrysler Financial Services achieved a record operating profit of e 652 million for 1998, up 11 percent from e 586 million in 1997. Return on equity rose by 1.8 percentage points to 21.8 percent. Revenues increased to e 2.9 billion compared to e 2.4 billion in 1997. Chrysler Financial Services and DaimlerChrysler Services (debis) announced in early 1999 that they will merge. Operating profit and revenues at DaimlerChrysler Services (debis) reached new heights in 1998, and a record 5,300 jobs were created. Revenues increased by 21 percent to e 9.6 billion.
At e 392 million, operating profit was 59 percent higher than the e 246 million reported in 1997. This was mainly a result of further growth in Financial Services and IT Services. RONA for IT Services and Telecom Services increased by 0.1 percent-point to 17.5 percent and return on equity at Financial Services was up 1.1 percentage points to 17.4 percent. With an operating profit of e 623 million, 1998 was the most successful year for DaimlerChrysler Aerospace (Dasa) since its founding in 1989. Compared to the 1997 figure of e 284 million, operating profit has more than doubled. The favorable performance of Dasa demonstrates its strengthened earning power based on the success of the restructuring and optimization programs.
RONA at Dasa reached 43 percent, up 6.8 percentage points. This extraordinarily high figure is due to the relatively low net assets within the aerospace business and therefore not directly comparable with the returns achieved in other industrial activities of the group. Under the segment "Other", an operating loss of e 146 million is shown. This segment is made up of Adtranz, MTU/Diesel Engines, TEMIC, Potsdamer Platz, unallocated headquarters and research costs, as well as financial holdings in many countries. The 1998 loss marks an improvement from the 1997 operating loss of e 225 million MTU/Diesel Engines and TEMIC, the Automotive Electronics business unit, were profitable and could increase the operating profit.
Adtranz, the Rail Systems business unit, showed significant losses and as a result is continuing its stringent restructuring programs. Revenues at MTU/Diesel Engines rose by 5 percent to e 921 million and TEMIC increased revenues by 35 percent to e 754 million. Adtranz increased revenues by 2 percent to e 3.3 billion and incoming orders increased from e 3.8 billion to e 4.2 billion.